Microfinance in Post-Conflict Areas

Because Kiva lenders are social investors, the crowdfunded capital from Kiva's website can help places and organizations that commercial capital isn’t willing or able to serve, including countries and regions affected by conflict, war and political unrest. In my time working for Kiva as Field Support Specialist for Francophone Africa and the Middle East and Portfolio Manager for Francophone and North Africa, I’ve had the privilege of working with a variety of microfinance institutions (MFIs) serving conflict-affected areas such as Palestine, Mali and the Democratic Republic of the Congo (DRC). In so doing, I’ve been surprised and fascinated to learn how organizations must adapt to the difficult, violent and challenging environments in which they operate.

To bring some of this to life, I thought I'd share a few examples of practices I’ve observed among our Field Partners working in conflict zones:

They provision more. In order to plan ahead for loans that may not be repaid in the future, an MFI will put money aside in order to cover losses. This is called provisioning. Usually, a certain percent (10% for example) is put aside for loans more than 30 days late. The MFI then provisions 20% for loans more than 60 days late, 30% for loans more than 90 days late, and so on.

In Palestine, the security situation colors all aspects of people’s lives and microfinance operations are no different. I was interested to learn what our partners’ second step is when they learn that a bombing or incident has occurred in one of their operating areas. First, of course, they call their families, friends and coworkers to check that everyone is okay. Right after that, they revise their provisions to put more money aside for loans that probably won’t be paid back due to the conflict. Instability is their normal and these partners don’t have the luxury of taking a day to regroup.

They fortify their branch offices. When conflict is your reality, one of the things you must do is make sure that your money, records and staff are safe. A future Kiva partner located in a country that recently underwent a revolution is facing a need to reinforce their branch offices as firearms and petty crime spread in the areas where they work. As you might imagine, this is no small undertaking, as the cost of equipping dozens of branch offices with heavier safes is a heavy burden for a microfinance institution. But of course, there is no alternative.

They train their staff in peaceful conflict resolution. I’ve never lived in a war zone. The more I visit them, and meet people who have, the more I understand how trauma and fear grind people’s nerves and shift social dynamics toward discord and violence. Multiple Kiva partners in conflict-affected areas have chosen to offer trainings on peaceful conflict resolution to their staff, and some even offer conflict resolution trainings to clients as well.

They balance reaching into tough areas against the need for strong internal controls. Sending loan officers into refugee camps to disburse and collect repayments on their own can put these dedicated employees at risk. It can put clients at risk as well. A loan officer working alone in the field can easily become the victim of theft. Worse yet, these staff members themselves could pocket repayments or savings without anyone knowing, since their clients don’t have contact with staff at a branch office. It is hard to imagine that someone would take advantage of working in these conditions -- but when times are tough, it happens.

They protect their thin profit margins from inflation. Unstable countries often have high inflation rates, and when the value of a loan lessens over the course of the repayment term, an MFI does what it can to control costs, but often has to raise interest rates in order to recover the same value lent to a borrower. Inflation also puts pressure on MFIs to keep staff salaries in step with devaluing currency.

They struggle to organize repayments to their creditors. At the time of a coup or similar event, central banks commonly freeze assets. This means that businesses and individuals with money in country can’t get money out. This makes sense, of course, both to keep people from panicking and worsening an already-unstable situation by pulling out millions of dollars in short order. It also allows for controls on funding that may be directed to armed groups. However, if you are an MFI and you owe money to Kiva lenders, this situation puts you in a difficult position.

A partner in my region recently had trouble making a payment to Kiva because transfers had been frozen by the central bank. We at Kiva had to weigh our confidence in this partner, and their ability to eventually repay us, against our obligation to protect lenders and their funds. By pausing this partner and not allowing them to fundraise for new loans, we could have made a bad situation worse, since the partner would then have owed us even more the following month. Meanwhile, this MFI was spending time managing relationships with 10 panicked creditors (Kiva being just one of them) while simultaneously reassessing branch security and wondering how borrowers’ businesses would fare in the newly dangerous operating environment.

They keep staff safe, but open their doors as soon as the dust settles. Kiva’s partner, HEKIMA Microfinance, in Goma, DRC is a great example of this. HEKIMA was forced to shut their doors to keep their staff safe when M23 invaded Goma in 2012. So did all other banks in the town -- commercial banks and MFIs alike. But after just a few days, when the dust had barely settled, HEKIMA was one of the first financial institutions to open its doors again. They did this out of a commitment to not only serve their clients, but also out of a need to keep their clients loyal so that repayments would continue to flow in, and be able to be lent back out to more borrowers in need.

Conflict makes everything about running a business expensive, dangerous and difficult. The consequences of conflict for MFIs run from the banal (provisioning spreadsheets) to the crucial (weighing staff safety against lost repayments). The thing that impresses me most is that these MFIs and borrowers alike continue to work and to provide for their families under conditions I can barely fathom. But of course they do -- they have no other choice.

I’m privileged to work with and learn from these organizations and the inspiring borrowers they serve.